As a former channel sales manager (I spent years running a combination of direct and channel sales at both IBM and Oracle), I know firsthand that companies selling through the channel face no shortage of challenges.
Unlike with direct sales, channel sales managers don't know their end customers—they typically only know their reseller partners. This is due to the fact that data collection in the channel is difficult and sporadic. This can make targeting and managing incentive programs very difficult.
The right incentive programs and management can make a world of difference. In fact, on average, high-tech companies spend 11 percent of their channel revenue on incentive programs. Clearly, incentives exist to increase sales, but oftentimes they are not appropriately targeted to grow the right partners in the right markets. What's more, systems are not always set up to measure performance in real time. Only 31 percent of high-tech companies have the knowledge they need to tailor a channel incentive program to reach specific end-customer market segments. Similarly, more than half of high-tech companies are unable to determine optimal partner coverage by market segment. This leads to significant inefficiencies as programs are not properly targeted but tend to be broad-brush and therefore less effective in today's micro-segmented world.
Added to the planning and implementation problems that arise from lack of visibility into partner and end-customer needs is the very real issue of delayed payment. Processing and payment of incentives can be highly resource-intensive, with 60 percent of high-tech companies relying on manual calculations to process and pay on incentives. They have to make sure that they have collected all of the sales data from multiple sources, counted it, removed duplications, accounted for returns, and have all of the customer names right. Given this high-touch approach, is it any wonder that 44 percent of vendors take longer than 30 days after quarter end to pay partners on incentives earned? This timing gap leads to significant partner frustration and negates the loyalty you are trying to create, turning the incentive into a disincentive.
Manual processing delays also hinder visibility into incentive performance and ROI, reducing vendor ability to make midcourse corrections on underperforming programs. Partners can miss key opportunities to fully leverage an incentive program because they can't see how they are performing, or compare their performance against the overall incentive performance.
Fortunately, there's a straightforward methodology for improving channel incentive program performance, and ultimately, for enhancing sales.
The first step for channel sales managers is to identify precisely who they sell to—including partners and end customers. Enhanced visibility into channel sales information enables companies that sell through the channel to better understand who their end customers are and what they need.
How can manufacturers get to know their partners and end customers better? Automated delivery of valuable sales information back into CRM and partner relationship management systems, as well as to partner portals, helps manufacturers and partner gauge partner performance. It also simplifies life for both vendors and partners by eliminating resource-intensive manual submission and processing efforts and giving vendors the ammunition they need to effectively target their programs.
Their resellers in turn can drive revenues and the end-customer benefits from this enhanced awareness of their needs in the form of better service, as well as offering the products that are the most effective for their business.
Manufacturers can increase sales because they are targeting specific markets with customized campaigns, messaging, and offers versus shooting in the dark. For example, they may see trending that identifies many of their end customers as being in the healthcare market. Armed with this knowledge, they can then provide guidance on which products work best for that audience and why or engage additional partners that specialize in healthcare. Channel marketing programs evolve from being unfocused and vague into highly pinpointed initiatives that seek to reach specific segments through uniquely qualified partners with the skills and knowledge needed to succeed in those markets and get a high return on your program. Channel sales managers need to ask themselves some basic questions:
- Which partners focus on targeted verticals?
- Who are the end customers in that market that they reach?
- Are sales keeping pace with growth in the targeted industry?
- Which products are successful in the target markets and who are the partners that are selling those products?
- Do you successfully leverage cross-sell, upsell opportunities?
Weekly insight into incentive program performance provides the flexibility to make changes based on market need as the quarter unfolds.
Establishing accountability—both with and for partners—is also imperative. Automating program implementation, data collection, and payouts increases the accountability, efficiency, and speed of incentives and payouts. This in turn increases partner trust and loyalty. A highly interactive program with immediate performance feedback also encourages program participation. Partners will want to participate knowing that they will have the ability to manage the program.
It's not enough to build a properly targeted program. Channel sales managers also need to stay on top of partner and customer performance on a weekly basis. They can then act on results to make midcourse corrections such as increasing the incentive on certain products, adding specific partners, and providing training for underperforming partners as needed to meet expectations.
Fortunately, most resellers are comfortable with cloud-based tools, so using mobile and Web applications with partners makes it very simple for them to see the benefits of the programs, as well as check their own status with real-time visibility into program performance.
Transitioning to a pay-for-performance channel incentives strategy is possible with a sales data collection and payment process that will support a timely and accurate payment to the partner. Programs that use accurate, standardized, and enhanced data to drive planning, accountability, and effective communication can be aligned to pay on actual performance instead of soft goals. Properly planned programs based on actionable data will also include measures for success, making ROI easy to calculate and track. Include incremental impact in performance metrics. Determining the incremental impact of the program is critical; for example, did participating partners grow faster than nonparticipants? This information can lead to stronger, better adopted programs. With a pay-for-performance strategy, incentive programs are more effective.
What's more, ensuring that partners are paid on time significantly increases incentive program participation and ROI. Adjusting programs "in-quarter" based on real-time partner performance against goals can allow for midcourse correction, instead of seeing results 90 days after program end. Redirecting attention to incentives that are driving sales achieves measurable revenue objectives…and growth.
A Final Word
In an economy that continues to be challenged, it's more important than ever for companies to take a hard look at the effectiveness of their channel programs. Well-planned, flexible incentives that are based on actionable, timely transaction data are a "win-win" because they not only drive sales, but also increase partner loyalty.
So as you plan ahead, ask yourself if your channel program is based on what your customers—and your partners—need.
Mark Geene is chief executive officer of ChannelInsight.